Home ownership moves further out of reach

Britain's lowest-paid families are seeing the first rungs of the housing ladder pulled out of their reach, according to a damning review of the housing market published yesterday.

The report - commissioned by Gordon Brown to investigate Britain's inadequate supply of new housing - showed that the lowest paid households have found it twice as difficult to buy a home in some regions within the last decade.

The situation has been made worse by the trickle of new homes coming on to the market - at such a slow rate that it would take 1,200 years for the building industry to replace Britain's housing stock.

New house building has fallen to its lowest level since the first world war, the report warned, with the lack of supply one reason for Britain's notoriously high level of house price inflation.

"It is clear that the housing market is not working as well as it should. There is a problem of weak supply, with major implications for the UK's economic well-being and house price volatility," said Kate Barker, the review's author and a member of the Bank of England's monetary policy committee.

The review - an interim report, with policy recommendations to follow next year - showed that 175,000 new residences were built in 2001, the housebuilding industry's worst performance since 1945.

In the last decade the number of new houses has fallen well below the level of the 1980s, leaving Britain with an ageing housing stock and forcing up prices in densely populated urban areas.

Ms Barker warned that radical reforms will be required to bring the supply of new housing up to the level of the European or US economies, with an extra 39,000 new homes - in addition to the 150,000 built each year - required just to cope with the increase in households. To bring price rises down to European levels, Ms Barker estimates that double the number of houses would have to be built each year - otherwise British housebuyers will continue to pay an average of £32,000 more than in Europe, a total cost to the economy of £8bn.

David Adams, professor of land economy at Aberdeen University, said the Treasury's role in the review was an encouraging sign. "What has happened in the last few years is the realisation that these are not just about planning or land, but are macro-economic issues."

Prof Adams said there was a need for regional land agencies, along the lines of the Land Authority for Wales, to handle the land conversion and planning process, allowing builders to focus on construction.

The interim review lays a proportion of the blame for the low level of supply on weak productivity and skills shortages in building firms, complex planning regulations, and local authority planners who have little incentive to encourage house building.

"For those who do not own a house the market has failed to deliver," the report says, quoting research showing that while 46% of households could afford a home in the late 1980s, the proportion has now fallen to 37%.

For lower income earners the chances of buying a house has got even worse as a result of rapidly rising prices.

Households within the lowest 25% of earnings bracket have seen even the cheapest sectors of the housing market rise from three and a half times earnings in 1993, to more than five times earnings in 2002.

For the lowest income earners living in London, the price of cheap housing has soared from less than four times earnings in 1993, to nearly eight times their annual earnings - taking home ownership out of reach.

The review suggested looking at using vehicles such as the US-style real estate investment trusts to encourage financial institutions to invest in residential property.

The interim review was greeted with enthusiasm by housebuilders, and concern by environmental groups that greenbelt land could be under threat.